Álvaro Leandro, Jeromin Zettelmeyer: Safety Without Tranches: Creating a ‘real’ safe asset for the euro area

There is a recent resurgence of interest in proposals to create ‘safe’ euro-area level debt instruments that would help to break the doom-loop between sovereign risk and bank risk. The leading idea is to create ‘sovereign bond backed securities’ issued in multiple tranches, the most senior of which (‘ESBies’) could play the role of a safe asset (Brunnermeier et al. 2017, High Level Task Force of the European Systemic Risk Board 2018).